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Services as Experience Goods: An Empirical Examination of Consumer Learning in Automobile Insurance

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  • Mark Israel

Abstract

Theoretical work on experience goods sets out three empirical questions. How accurate is information at initial purchase? How rapidly do consumers learn from product experiences? And how much impact does learning have on purchase decisions? I answer these questions for the case of automobile insurance, using a panel of 18,595 consumers from one firm. My principal findings are: patterns of consumer departures following claims point to learning; consumers enter the firm overly optimistic about its quality and are generally disappointed by experience; and the impact of learning is mitigated by the slow arrival of claims and the development of lock-in.

Suggested Citation

  • Mark Israel, 2005. "Services as Experience Goods: An Empirical Examination of Consumer Learning in Automobile Insurance," American Economic Review, American Economic Association, vol. 95(5), pages 1444-1463, December.
  • Handle: RePEc:aea:aecrev:v:95:y:2005:i:5:p:1444-1463
    Note: DOI: 10.1257/000282805775014335
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    References listed on IDEAS

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    Cited by:

    1. Szymanowski, M.G., 2009. "Consumption-based learning about brand quality : Essays on how private labels share and borrow reputation," Other publications TiSEM b12825d8-5e21-4437-adda-b, Tilburg University, School of Economics and Management.
    2. Anja Lambrecht & Katja Seim, 2006. "Adoption and Usage of Online Services in the Presence of Complementary Offline Services: Retail Banking," Working Papers 06-27, NET Institute, revised Oct 2006.
    3. Elisabeth Honka, 2014. "Quantifying search and switching costs in the US auto insurance industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 847-884, December.
    4. Anindya Ghose & Sang Pil Han, 2009. "A Dynamic Structural Model of User Learning in Mobile Media Content," Working Papers 09-24, NET Institute, revised Oct 2009.
    5. Ryan W. Buell & Dennis Campbell & Frances X. Frei, 2016. "How Do Customers Respond to Increased Service Quality Competition?," Manufacturing & Service Operations Management, INFORMS, vol. 18(4), pages 585-607, October.
    6. Li, Dong & Nagurney, Anna & Yu, Min, 2018. "Consumer learning of product quality with time delay: Insights from spatial price equilibrium models with differentiated products," Omega, Elsevier, vol. 81(C), pages 150-168.
    7. Paul Kofman & Gregory P. Nini, 2013. "Do Insurance Companies Possess an Informational Monopoly? Empirical Evidence From Auto Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(4), pages 1001-1026, December.
    8. Alma Cohen & Peter Siegelman, 2010. "Testing for Adverse Selection in Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 39-84, March.
    9. Czajkowski, Mikołaj & Hanley, Nick & LaRiviere, Jacob, 2013. "The effects of experience on preference uncertainty: theory and empirics for environmental goods," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia 152155, Australian Agricultural and Resource Economics Society.
    10. Mandy Mantian Hu & Sha Yang & Daniel Yi Xu, 2019. "Understanding the Social Learning Effect in Contagious Switching Behavior," Management Science, INFORMS, vol. 65(10), pages 4771-4794, October.
    11. Hintermann, Beat & Lange, Andreas, 2013. "Learning abatement costs: On the dynamics of the optimal regulation of experience goods," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 625-638.
    12. Andrew T. Ching & Tülin Erdem & Michael P. Keane, 2013. "Learning Models: An Assessment of Progress, Challenges and New Developments," Economics Papers 2013-W07, Economics Group, Nuffield College, University of Oxford.
    13. Chatain, Olivier & Eizenberg, Alon, 2015. "Demand Fluctuations, Capacity Constraints and Repeated Interaction: An Empirical Analysis of Service Quality Adjustments," CEPR Discussion Papers 10545, C.E.P.R. Discussion Papers.
    14. Czajkowski, Mikolaj & Hanley, Nicholas & LaRiviere, Jacob, 2013. "The Effects of Experience on Preference Uncertainty: Theory and Empirics for Public and Quasi-Public Environmental Goods," Stirling Economics Discussion Papers 2013-11, University of Stirling, Division of Economics.
    15. Mikolaj Czajkowski & Nick Hanley & Jacob LaRiviere, 2015. "The Effects of Experience on Preferences: Theory and Empirics for Environmental Public Goods," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 333-351.
    16. Alessandro Bonatti, 2011. "Menu Pricing and Learning," American Economic Journal: Microeconomics, American Economic Association, vol. 3(3), pages 124-163, August.
    17. Leemore Dafny & David Dranove, 2008. "Do report cards tell consumers anything they don't already know? The case of Medicare HMOs," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 790-821, September.
    18. Hongjuan Song & Yushi Jiang, 2019. "Dynamic pricing decisions by potential tourists under uncertainty: The effects of tourism advertising," Tourism Economics, , vol. 25(2), pages 213-234, March.
    19. Jie Bai, 2016. "Melons as Lemons: Asymmetric Information, Consumer Learning and Seller Reputation," Natural Field Experiments 00540, The Field Experiments Website.
    20. Andrew T. Ching & Tülin Erdem & Michael P. Keane, 2013. "Invited Paper ---Learning Models: An Assessment of Progress, Challenges, and New Developments," Marketing Science, INFORMS, vol. 32(6), pages 913-938, November.
    21. Jerzy Kociatkiewicz & Monika Kostera, 2020. "‘Our Marketing is Our Goodness’: Earnest Marketing in Dissenting Organizations," Journal of Business Ethics, Springer, vol. 164(4), pages 731-744, July.
    22. K. Sudhir & Nathan Yang, 2014. "Exploiting the Choice-Consumption Mismatch: A New Approach to Disentangle State Dependence and Heterogeneity," Cowles Foundation Discussion Papers 1941, Cowles Foundation for Research in Economics, Yale University.
    23. repec:sss:wpaper:201405 is not listed on IDEAS
    24. Matthew Osborne, 2011. "Consumer learning, switching costs, and heterogeneity: A structural examination," Quantitative Marketing and Economics (QME), Springer, vol. 9(1), pages 25-70, March.
    25. Martín-Rodríguez, María, 2018. "A dynamic monopoly with risk-averse consumers," Information Economics and Policy, Elsevier, vol. 43(C), pages 61-70.

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